But the intrigue did not stop there. In January 2011, Activision was allowed to add EA as a cross defendant. Why? Because Activision believes that Electronic Arts intended to “derail Activision’s Call of Duty franchise, disrupt its Infinity ward development studio, and inflict serious harm on the company.” While both sides have prepared for an intense battle, the incredible splash of Modern Warffare 3 has highlighted just how much is at stake. It only took sixteen days for the game to reach $1 billion in sales. If the sides can’t settle their differences before the May court date, we could never see another game in the series that got to $1 billion quicker than Avatar.

This case touches on many legal issues that have been bubbling within the game industry. As games have become more and more expensive to produce, more developers have been acquired by large publishers. The people who code the game are going to want the biggest return on their work possible. The publishers who finance the operation want the lion’s share too, as they make the investment and take on the risks involved with marketing and selling the game worldwide. Added to this already volatile mix is the turf war between developers like EA and Activision. Their ability to continue has everything to do with attracting great development talent and holding properties people will buy again and again.

As always, Law of the Game will have its ears wide open when the case begins in May, and will share what we learn as soon as possible.

Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.

Tuesday, January 24, 2012

It’s been a crazy week with many crazy stories. Fears about the Stop Online Privacy Act created a massive online response, thrusting copyright reform into the national conversation. But while people were speculating on the future of intellectual property, the Department of Justice shut down Megaupload. Over the last five years, Megaupload had grown in popularity as an online “cyberlocker”. As broadband use explodes, the value of these companies is obvious. They are a user-friendly FTP where anyone can place files on a central server, to access them from a different locations or share them with others. When use a cyberlocker to store your baby photos or send a song you wrote to friends, there is no legal issue.

There might have been pictures of a two-year-old’s birthday party or basement demos somewhere on Megaupload, but review of the indictment made public this week shows the site knew their bread and butter was piracy. Although they had disclaimers on their site that users could be punished for uploading copyrighted content, the indictment claims that there was little, if any, enforcement. Instead, Megaupload acted to encourage infringement, primarily by creating an Uploader Rewards program that offered cash payments to the users who provided the most popular files. This, along with many more bad decisions detailed in the indictment, made the shutdown seem like an inevitable event.

There are many layers to this situation. It is a fascinating and frequently entertaining story, complete with outsized characters. One of the defendants Kim Dotcom (formerly Kim Schmitz) was living in China and New Zealand, and drove luxury cars with “GOD” license plates. Megaupload had an internal search engine to pluck whatever they liked from the servers, and one exec e-mailed another complaining his stolen copy of the Sopranos was in French. Employees described themselves as a modern day shipping service for pirates. In the wake of the shutdown, many have expressed concerns that this might signal an aggressive stance towards other sites that serve as cyberlockers. While it is unclear if that is the case, there are some lessons we can take to heart.

The federal government is very serious about delivering heavy blows to electronic money laundering, and are out to discourage anyone (including foreign companies) supporting it. Poker Stars, Full Tilt Poker, and Absolute Poker all tried to avoid the Department of Justice by operating offshore, but were sunk last year. The Treasury’s new Prepaid Access rules have enhanced company obligations to verify customer data, collect information, and comply with law enforcement. This is a sustained pattern that has continued with Megaupload, as the third count in the indictment is for money laundering. It appears it has again been proven that doing your due diligence on your customers and making sure that you do not let suspicious transactions go unnoticed will always be a good investment of money and time.

This case seems uniquely egregious, and it may be that worries about a wider crackdown are exaggerated. Most companies are not going to present such an obvious case for prosecution. Megaupload’s border hopping executives built a business model around attracting stolen content by offering cash incentives to users whose uploads produced traffic. They reveled in their criminality and invited the attention of law enforcement. There is a push to address copyright law and make broad, substantive changes, but most companies offering cyberlockers are not going to be waving a giant flag saying “SHUT US DOWN” like Megaupload did.

As we recently discussed on BitTorrent, the struggle of the government and the courts with file-sharing is part of a broad pattern. There is no widespread agreement on how to deal with these issues, as the hue and cry over SOPA proved. But it is hard not to be encouraged by the emergence of technology law in the national conversation. Last week, the two biggest stories were a piece of legislation that had yet to make it to a vote, and the shutdown of Megupload. If it gets people thinking critically on how to help the law catch up with modern technical realities, everybody benefits. Except Kim Dotcom. He is (probably) in big trouble.

Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.

Tuesday, January 17, 2012

Since the beginning of its existence, BitTorrent has been a lightning rod for controversy. Comcast choosing to slow down or “throttle” the service’s traffic was one of the first shots fired in the ongoing battle over Net Neutrality.

This is not just a problem here in the States. Canadian provider Rogers ”throttles more than any other internet provider in North America”. This issue is not going away. It speaks to many fundamental questions on the future of the internet, and also the future of video games. BitTorrent has exciting, perfectly legal applications. You can use it to quickly and easily transfer a homemade game to a friend, or share your own machinima. The downside is that, thanks to its ample capacity and dispersed load, pirates have thrived, distributing illegal versions of games for free. That bites into already precarious profits and reduces the incentive developers have to make the new games we love.

This profound problem got a new wrinkle when TorrentFreak recently claimed they traced BitTorrent downloads to the Recording Industry Association of America and US Department of Homeland Security. Using YouHaveDownloaded.com, TorrentFreak alleges they found that six unique IPs within the RIAA and more than 900 at DHS downloaded illegal materials from BitTorrent. TorrentFreak is undeniably partisan. The blogger who provided these claims uses an alias (presumably due to fears of reprisal). But, it is not hard to believe that employees at large organizations get copyrighted materials for free. To be fair, we don’t know why these files were downloaded or what was done with them. It’s possible it was for personal use as most coverage of this has implied, while it’s also possible it was downloaded as part of an investigation, which may have even been at the request of the rights holder. All we know is the files were likely downloaded by someone at those IP addresses.

TorrentFreak’s claim they have found foxes in the henhouse is interesting, it does not answer any questions. Is it embarrassing for the RIAA? Yes. Regardless of what the real reason may be here, the publicity’s implications have been negative in a pretty much universal manner. But, it does not solve the unresolved problem of how to confront the clash between copyright owners and the easy sharing the internet allows. Law of the Game will keep you updated of new developments as they become available.

Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.

Tuesday, January 10, 2012

Here at Law of the Game, both Mark and myself are big college sports fans, particularly of the burnt orange and white. (Hook ‘em!) For those of you out there with similar obsessions, you have probably played one of EA’s NCAA Sports games and enjoyed coaching your alma mater to (imaginary) glory. You might have used one of the classic teams and enjoyed the golden years of Michael Vick at Virginia Tech, or Julius Erving at the University of Massachusetts. But does the fact that these games do not use player names mean they have the right to make similar characters without paying royalties?

That is the fundamental question asked by UCLA basketball great Ed O’Bannon in his lawsuit against the NCAA. The original filing was back in 2009, and multiple plaintiffs have joined since. They argue the NCAA’s behavior amounts to unlicensed use of their image and likeness. Taylor Branch highlighted the dispute in October. The Atlantic published his exhaustive and powerful article The Shame of College Sports, and some quotes from O’Bannon get to the heart of the issue:

“Once you leave your university,” says O’Bannon, who won the John Wooden Award for player of the year in 1995 on UCLA’s national-championship basketball team, “one would think your likeness belongs to you.” The NCAA and UCLA continue to collect money from the sales of videos of him playing. But by NCAA rules, O’Bannon, who today works at a Toyota dealership near Las Vegas, alleges he is still not allowed to share the revenue the NCAA generates from his own image as a college athlete.

“Let’s start with the basic question,” he said, noting that the NCAA claims that student-athletes have no property rights in their own athletic accomplishments. Yet, in order to be eligible to play, college athletes have to waive their rights to proceeds from any sales based on their athletic performance. “What right is it that they’re waiving?” Hausfeld asked. “You can’t waive something you don’t have. So they had a right that they gave up in consideration to the principle of amateurism, if there be such.”

These rights are lucrative. EA Sports paid $35 million last year to the NFL Players Union to compensate players who appear in their enormously popular Madden and NFL Street franchises. Former collegiate players haven’t seen any money to date. A ruling against the NCAA could mean big changes for the way these games are developed and financed going forward.

The plaintiffs in O’Bannon v. NCAA are seeking an injunction against further use, damages, and an accounting for profits made by the NCAA from the licenses they’ve already sold. The suit has had slow going so far. The latest update is that the case is in Dallas Federal Court over a discovery dispute with Conference-USA. The plaintiffs have managed to fend off attempts at dismissal by the NCAA so far, but we should expect both sides to fight this one as far as they possibly can. An accounting of profits, if a court found the NCAA liable, could be a deep, painful stab at their continued financial viability. It could also be a powerful precedent for current players to sue on similar grounds.

The NCAA’s position is not completely without merit. Their rules, flawed as they may be, have been applied consistently for decades. Among professional leagues, these rights are typically handled collectively (like the NCAA) to simplify licensing agreements. There are arguments for this simplicity, and it is difficult to say what percentage of the license fee paid to the NCAA is for current players versus the retired players. Historic rosters bring value, but to subdivide that by the value of a given year’s team and further separate it by player is difficult. Moreover, the percentage of historic inclusions at the college level is substantially lower than at the pro level since there are many more teams in the NCAA.

We will continue to watch the progress of O’Bannon with a close eye. As gamers and sports fans, it could forever change the games we have enjoyed so much.

Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.

Editor in Chief

Mark Methenitis is an attorney in Dallas Texas. Mark received his Juris Doctorate and his Master of Business Administration from Texas Tech University and his Bachelor of Arts from The University of Texas.

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